Tax-free gifts to staff
In an environment where most employee 'perks' are subject to tax it may be helpful for you as an employer to be aware of the few concessions that have been made by HMRC.
However, these concessions may not apply if the arrangement is linked with the employee giving up an amount of salary to receive the benefit (known as salary sacrifice).
Long service awards are allowed within strict limits. There will be no tax charge so long as the employee has been with you for at least 20 years and the non-cash award given has a value not exceeding £50 for each year of service and no long service award has been given in the last 10 years.
Suggestion scheme awards
Such awards must be made under a properly constituted suggestion scheme, based on a set percentage of the expected financial benefit to your business. The maximum exempt award allowed is £5,000. There is also a concession for 'encouragement awards' of £25 or less to reflect meritorious effort on the part of the employee concerned.
Staff annual functions, such as a dinner dance or Christmas party, are tax-free where the total cost per person attending is not more than £150 per year (including VAT).
There have been a number of recent HMRC challenges - in particular where the costs exceed £150. If the amount is £151 or more, the full amount is taxable.
If you have exceeded the limit due to a combination of staff functions, you are able to utilise the limit in the most efficient way possible regardless of the order of the functions during the tax year. For example, if you had three annual staff parties in a tax year costing £40, £45 and £100 per head, the most tax efficient combination would be the £45 and £100 staff function. The full cost of the £40 per head staff party would be taxable.
In addition to the total cost of parties in the tax year (per staff member) not exceeding the £150 limit, the parties:
- Must be primarily for entertaining staff
- Must be open to all staff
- Should not be just for directors, unless all staff are directors
What is included in the £150?
The £150 must include VAT even if the employer reclaims this and also costs, such as travel and accommodation, are to be included.
These costs should simply be divided by the number of those attending, not the total number of the company's employees.
For further details of other non taxable benefits see Benefits in kind & Expenses payments.
Trivial gifts are exempt from tax up to a vale of £50 per gift. This would apply to gifts such as Christmas gifts, or gifts on the arrival of a child or other personal event.
It is also possible to use the exemption to provide flu vaccinations for staff and similar arrangements, provided the benefit is not a voucher exchangeable for cash or a reward for doing their job. Many employers now take the opportunity to provide retail vouchers as gifts for employees at appropriate times.
A cash benefit, or a cash voucher however, is always taxable irrespective of the value.
Directors are further subject to an annual cap of £300 on gifts to themselves or employees who are members of their family.